- Don't create bigger problems than you're trying to solve.
In this educational episode,
I'm going to address why you should never
add your children, your kids' names as joint tenants
on your property
or your bank accounts, and so forth.
A lot of people don't think about this
until it's too late.
(upbeat music)
So I'm Doug Andrew.
I've been a financial strategist
and retirement planning specialist now,
for nearly five decades.
Helping people optimize assets, minimize taxes,
and empower what I call their authentic wealth.
I've spoken over 90,000 hours in my life
at teaching the general public,
such things as asset protection,
and I've actually trained a lot of attorneys
on how to properly protect assets.
And they say, "Golly, Doug, you are doing a great service
to the general public,
telling them not to put their children's names
on their bank accounts,
and their checking accounts,
and on the deeds to their houses,
thinking they're going to avoid probate
by simply owning things in joint tenancy.
We can't believe how many people do not understand this."
So the purpose of this episode is to warn you.
Now, first of all, why do people do that?
Most of the time when I'm speaking in an audience,
and I say, " How many of you
have added your children's names to your bank accounts,
savings, checking, and even have added your kids' names
to the deed on your house to avoid probate?"
And predictably,
about a third of the audience goes, "We have."
"Okay, so who told you to do that?"
And it's usually, you know,
some well intending friend or whatever.
"Well, yeah, just add your kids' names to the deed.
Make them a joint tenant on your checking account
so that if you die,
that will not be probated."
Because if you've watched my episode on what probate is,
probate, sometimes, can be a lengthy process
that will tie up assets
in a checking or savings account or in a home,
waiting to go through
and make sure all the creditors are satisfied,
the Federal Government and within taxes,
the state, the local,
and then the court costs,
the attorney's fees, the executor's fees,
and then any creditors,
before finally, the heirs get it.
And so people think they're clever
by avoiding that process called probate.
"Well, you just add your child's name, joint tendency,
they now automatically get it when you die."
It sounds like a simple solution, right?
Well, I started out this episode saying
don't create bigger problems
than what you're trying to solve.
You may have solved probate on that asset,
but you may have created way bigger problems
than you even realized.
Why?
Okay, so there's a couple of issues,
let's talk about the first one.
By adding your children's names
to a bank checking, savings account, investment account,
and now, you can name them as beneficiaries
of an IRA or whatever,
I'm not talking about that.
I'm talking about bank accounts,
the deed to your house,
thinking, "Okay, so if we die."
You, your spouse, or whatever.
"Now because my child's name is on the house,
they will automatically get it
because it's under joint tenancy
and we don't have to go through probate,
it's just, we don't have to go through any of that mess."
True, but what else did you just do?
You just inherited your children's liabilities, okay?
I could tell you a horror story upon horror story.
I remember one time,
this couple in Central Utah,
added their children's names to their retirement estate.
And when they did that,
their son got into trouble with the IRS
and ended up owing back taxes
of a quarter of a million bucks.
And the IRS, in less than one minute,
went online and did an asset search
on their son's assets
because they're gonna go after the money to get the tax.
In less than 60 seconds
they went, "Oh, this man
owns 100% of a beautiful home,
a ranch home in Central Utah.
We're gonna take that
because it's free and clear."
And the IRS goes down there to sell it,
and the parents are like,
"This isn't our son's home, it's our home.
This is our retirement home."
"No, you added his name two years ago.
And not only that,
but you owe a gift tax when you added his name,
you should have paid a gift tax,
but joint tendency
means he owns 100% too."
See, it's interesting, let me explain it this way.
When you have a joint checking account,
and if it's got $1,000 in it, okay?
And you own it jointly with your spouse,
that means you could write out a check
for the entire 1,000, not just 1/2 of it.
And your spouse
could write out a check for the entire 1,000,
but does that mean there's 2,000 in there?
No, there's only 1,000, but both of you own it all.
You add a child, and now they own it all.
So when the IRS looked at it and said,
Sorry, your son has 100% joint tendency,
owns 100% of this house, not a third of it, 100% of it.
You thought you were clever, we're taking your house."
They lost their house
because they added their son's name to it.
I had another similar example,
where they added their child's name
and their child got into an accident,
didn't renew the car insurance, was uninsured,
they were texting, they got sued
for a million.
I had another client that was sued for 5 million, okay?
Because of the, they were out on a youth activity
and the wife let
a 16-year-old who just got the driver's license
drive the car and she wrecked it,
and so the parent's sued.
Well, the first thing they do
is they do an asset search, and they go,
"Oh, look, this person..."
And they looked at this and their child,
who was uninsured, got sued for over a million bucks,
owned 100% of their house,
and 100% of their checking and savings accounts.
They went right after that because of joint tenancy.
So if you put your child's names
on those deeds and those accounts,
you may avoid probate,
but the bigger problem is,
you just inherited all your kids' liabilities,
and if they get into trouble, they own it all.
Not a third, not a fourth, they own it all
because you added them as a joint tenant to avoid probate.
Was that worth it?
What's the solution?
You set up a trust.
You protect your house and your assets in a trust.
And when you do those right,
and you set up entities like
limited liability companies,
then that will go down to your son or your daughter
and avoid probate.
But some people say, "Well I don't wanna spend
a couple of thousand setting up a trust."
"Oh, so you wanna lose your house,
and all the cash in your bank account,
adding your child's name to avoid probate?
That's stupid, okay?
So other than that,
I don't have any strong feelings on the subject,
but you avoid the problem by setting up a trust,
rather than adding your kids' names.
Now, what was the other thing I mentioned?
I have had people who have done this,
they have added their child's names
to their bank accounts, their investment accounts,
and their real estate,
thinking they're avoiding probate,
and the IRS finds out.
And I remember one time the IRS
came in during an audit and goes,
"Oh, so when did you do this?"
"Well, five years ago we added our children's names
to avoid probate to these real estate properties,
and to our investment accounts and our bank accounts."
That was a gift."
"A gift?
"We just added their names, that was a gift.
'Cause now they own it all"
"You should have paid a gift tax,
you should have filed a gift tax return,
and there's a certain exemption amount,
but anything over that, you owe 37%."
It was significant, 37%, they had to write out a check
for hundreds of thousands of dollars in gift tax,
plus penalties, plus interest,
simply adding their child's name
to their real estate, and their bank accounts,
and their investment accounts
because they didn't file a gift tax return.
Don't create bigger problems than you're trying to solve
by just adding your kids' names
because you are gifting them that asset,
and you may owe a gift tax,
let alone, inheriting their liabilities.
Is this scaring you?
Whenever I say this in front of an audience,
I see the blood drain out of people's faces,
and they immediately start jabbing their spouse,
and they immediately go down the next day
and take their kids names off.
Well, sometimes, just don't let the IRS know
because now, they gifted it back,
and you know, there's all kinds of things.
So you wanna make sure you undo it correctly.
Just set up a trust and make sure you do it correctly
so that you accomplish
what you're trying to do to avoid probate,
without adding a whole bunch of other problems.
Does that make sense?
Hopefully, this has been valuable to you.
Don't put things in joint tenancy.
I don't own things in joint tenancy with my wife.
We have a trust, I have a trust, my wife has a trust.
We just don't do it
because that means you both own it all.
That means if somebody sues you,
if the house is in joint tenancy,
they can take 100% of that house
if you were the one that caused the accident
or if your wife was the one, they can take 100%
because you own it in joint tenancy.
Just don't own things in joint tenancy
is my simple advice.
Go to an attorney to get the proper legal advice,
that's my take, okay?
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There's also options there
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because this is about you and your brighter future.
I love providing value and insights
into some opportunities,
or maybe dangers you didn't even know existed before.
(inspirational music)